The author is a Forbes contributor. The opinions expressed are those of the writer.

Loading ...

Loading ...

This story appears in the {{article.article.magazine.pretty_date}} issue of {{article.article.magazine.pubName}}. Subscribe

Brendan Kennedy bristles when you ask him if smoking pot recreationally is still a stigma in the American workplace. In fact, he says that moment passed two or three years ago, as the majority of Americans now support legalizing marijuana, and even more approve its medicinal use.

"Anyone who wants to consume is already consuming it," Kennedy says.

So what's Kennedy smoking? As cofounder and CEO of Privateer Holdings, he's poised to cash in on that trend in a big way, tapping a market that he believes is worth $50 billion in the United States and four times that worldwide. And now with major institutional venture backing, he's hoping to blaze a trail in making legal, legitimate bucks off that trend.

Privateer Holdings, a private equity firm with three major distinct investments in the legal cannabis space, announced Thursday that it's raised millions from its first major institutional investor, Founders Fund, as part of an ongoing Series B Round. The firm led by billionaire Peter Thiel has invested undisclosed millions but isn't leading the round, which will total $75 million between a $60 million raise and a $15 million convertible debt note. That brings the company's total funding to date to $82 million, the rest of it from earlier wealthy individuals and family offices.

The deal confirms intentions Kennedy made clear in an interview with Fortune in July, when he announced intentions to bring an institutional investor onboard. In December, Business Insider reported the deal could value the company at more than $400 million.

With the investment, Thiel's Founders Fund has taken up the mantle of first venture firm into the legal pot market. According to partner Geoff Lewis, who led the investment, the diligence on Privateer lasted 18 months--as much as it took to study SpaceX, the company's big bet on Elon Musk's space-flight operation.

Privateer primarily operates three fully-owned subsidiaries touching different points in the cannabis industry. In Canada, it operates Tilray, a medical marijuana brand grown and processed in British Columbia and potentially soon Uruguay. In the United States, where the cannabis industry operates in more of a grey area between federal and state regulations, it operates Leafly, an online site for cannabis-related reviews and stores that Kennedy says gets 4 million visitors a month. Most recently, the company partnered with the family of famed performer Bob Marley on lifestyle brand Marley Natural, a 30-year licensing deal to offer Jamaican cannabis strains and hemp-infused products starting later this year.

Privateer and Founders Fund are betting that the marijuana industry in the United States now has the popular support to be ripe for a new wave of trusted major brands. "This will shake out similar to the alcohol industry or the soft drink industry, where economies of scale are very important," argues Lewis. "You want to have first-move advantage, and I think it will be aggregated to just a handful of companies."

Part of a Silicon Valley Bank Analytics and Yale School of Management-trained founding team, Kennedy's hoping that he has a head start through Privateer's $25 million production facility for Tilray and the additional operations the firm can set up with after its new funding closes. The company also hopes that the Founders Fund investment will lower the bar for more large financial institutions to make their own bets in the burgeoning field. "This announcement will give a lot of people in finance permission to look at this industry," Kennedy says.

As for Founders Fund, Thiel made headlines in Sept. when he joked on CNBC that Twitter's executives might be smoking too much pot to run an effective company. At the time, outlets like the Wall Street Journal noted that the billionaire's donated thousands to political efforts to legalize marijuana in California in the past. That could have been out of personal preference--or recognition of a major future business opportunity. Lewis says the uproar Thiel's comments made demonstrates hypocrisy that won't last. "There's something off with our society that that becomes a controversial thing. If Peter had said drinking too much scotch, I don't think that comment would have made a blip."

Changing perceptions--clearly gradual at best--could mean more money for early movers. But Lewis says Founders Fund steered clear of startups that operated illegally in the past or seemed too opportunistic in approaching legalized marijuana as a gold rush. As much as Kennedy argues the U.S. is moving from prohibition to legalization and normalization, it's still perhaps fitting that the opinionated Thiel and his free-thinking partners are the first investors to publicly put their name behind a pot operation.

As for Founders Fund's reputation becoming obscured by a cloud of smoke: Lewis blows that notion away. "We don't worry what people think about us," he puffs. The goal, more than ever for venture investors and private equity alike: roll in the green.